Health Benefits Exchange: What They Mean by Self-Sustaining

Amidst the political noise of news on marriage, immigration, and guns, Phil Marcelo has an informative article in today’s Providence Journal highlighting the fact that the State of Rhode Island is going to have to pay to maintain its ObamaCare health benefits exchange when federal dollars run out.

That’s an issue that I raised last July, in a policy brief for the RI Center for Freedom & Prosperity. As I wrote at the time:

… federal assistance toward start-up and operation expenditures for exchanges will end after 2014. Stan Dorn, of the Urban Institute, notes that states will thereafter have to come up with some reliable funding source — perhaps “surcharging insurance premiums; assessing health plans, employers, or individuals; appropriating state General Fund dollars; or otherwise.”

In Massachusetts, as part of its recent state-based health care reform, the exchange charges participating insurers a fee equivalent to 3% of premiums. Writes Dorn, “The insurers then pass on this cost to purchasers of coverage.”

That comparison gives some context to this sentence from Marcelo’s article:

Christine Ferguson, the exchange’s director, has said the state is considering various options to pay for operations, including charging administrative fees on plans sold through the exchange.

The underlying service of Marcelo’s article — and the financial inquiry by RI House Finance Chair Helio Melo (D, East Providence) that starts it off — is to strip the question of the exchanges down to the practical issue of what it is and how it will work. On that topic, consider the following:

[Exchange spokesman and former Lincoln Chafee campaign manager Ian] Lang says exchange staff will develop ways to rate and analyze how effective insurance plans are in keeping people healthy.

That public information, he said, will help residents and businesses make better decisions about health care and, hopefully, influence insurers to improve benefits.

“Over time, it’s going to drive reform and improve the way the system delivers care,” he said.

At the end of the day, the state’s health benefits exchange is nothing but a start-up company intended to fill a market need that the state and federal governments largely created, with $74 million in taxpayer money essentially handed over as a gift to get the organization up and running. The business model has the value proposition of “driving reform,” but that promise is entirely speculative and vague.

Furthermore, as Marcelo’s article amply proves, the government made the investment without requiring any substantial explanation of the cost structure or plan for covering operational expenses. (When you’re the government, you can force people to pay whatever is necessary, and if the whole experiment goes sour, hey, it’s not your money, anyway.)

The 3% “surcharge” on premiums is also speculative. As the entire health care industry of Rhode Island and the United States adjusts to the new reality of the Patient Protection and Affordable Care Act (PPACA; aka “ObamaCare”), prudent observers should prepare for the business model of the exchange to adjust, as well.

Not only is 3% likely to prove a dramatic understatement of the cost, but “driving reform” is likely to prove to be a euphemism for government intervention in health care decisions, accomplished largely outside of any political process for accountability by making activists’ plans a condition of doing business on the exchange, either as a consumer or a provider. Put differently: Insurance will become more expensive and harder to find outside of the exchange, and since the exchange is built almost as an independently operating quasi-governmental agency, special interests will be able to manipulate the plans that are available without anybody’s having to risk any backlash from voters.

Pay close attention to this thread from Marcelo:

[Lang] also said the exchange believes the governor’s executive order provides the authority needed to operate going forward. No legislation has been introduced to grant it legislative authority.

The sooner the people of Rhode Island realize that the problems of the health benefits exchange far exceed the question of paying for it, the less of their own money they’ll waste, and the more of their own freedom they’ll keep.

I have concerns about the exchanges too. Mine aren't that they exist, or how they're paid for. Let's just say that it seems like creating the exchange FIRST is putting the cart before the horse; first you need to have 'standards' to define coverage levels and medical coding, from there you can have the insurers 'report' to a centralized database and create a website.

Also, I've never seen a $100M software project go -right-, so I'm starting with a fair amount of skepticism.

It seems very off to me that the federal government is doling-out money for each state to do this individually. Ideally, they would create a 'template' and hand it off to the states, encouraging states to form regional 'consortiums'. The current way of doing this seems like it's an end-run around southern conservatives' fear that a single system that can identify everyone enrolled is a 'mark of the beast', or some nonsense like that.

Thanks a lot for sharing this, Justin. Personally, I have concerns about the exchanges as well and am still a tad skeptic. I agree, at the end of the day, the state’s health benefits exchange is nothing but a start-up company intended to fill a market need that the state and federal governments largely created. Well said.

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